Saving for school, cent by cent

FRANK H. CONLON/THE STAR-LEDGERLisa Roll plays bocce with her children, Thomas, 7, and Faith, 5, at their home in Glen Gardner. Roll is cutting back on eating out and making fewer online purchases to help save for her kids' college educations.

Despite the recession, Lisa Roll is determined to pay the entire college bill for her children.

She will probably start Faith, 5, and Thomas, 7, at a community college or a state school when they're ready to matriculate, however, to save money.

She and her husband, Tom, a contractor, also have cut back on dining out and buying anything online so they can put more away for the kids.

Roll, who lives in Glen Gardner, also saved money by taking out a Upromise college rewards card several years ago that has given her $7,000 to put toward a college savings plan.
"I had to pay for my education myself, and my goal is not to put my children through that," said Roll, 32.

Consumers like Roll are modifying spending and savings behavior during the recession to try and scrape together more money so their children can earn a college degree.

"Typically, you can't change fixed expenses, so most people make cuts in discretionary spending," said Michael Kay, president of Financial Focus, a Livingston wealth-management firm. "I have a client who got rid of his landscaper and had his 14-year-old son mow the lawn so he could pay for his college."

Other ways to save include increasing deductibles on car or medical insurance policies and using prepaid tuition plans to lock in the last two years of college, which are the most expensive, according to Kay.

Other parents are modifying how much they spend on clothing, entertainment and cars, according to Ira Ross, senior vice president for United Advisors in Rumson. He had a client who was spending more than $960 a month on a Lexus and a BMW. Ross advised him to trade the cars for two Honda Civics so he could save more for his kids' education.

"People can still save in a recession, but you have to be even more disciplined," he said.
He also advises people not to dip into their retirement fund to pay for college.

"It would be easier for your child to get a student loan than it would be for you to figure out how you will live in retirement," he said.

Mitch Abrahams, an attorney who lives in Randolph, has a son who will be attending college this fall. He was lucky his financial adviser, Net Worth Management in Morristown, pulled a lot of his college savings money out of the stock market.

Parents should shift to a higher mix of conservative investments three years before their children enter college, according to Dave Schluer, chief investment officer for Net Worth.

"We put a lot of his money in short-term investments, which only pay half a percent interest," he said. "But when the market goes down 40 percent, it's very easy to stomach that kind of return."

Abrahams took a hit in a 529 savings plan he had set up for his son. But he can always use it for his daughter, who is only 15.

"I don't think a lot of people realize they can just name another child for that 529 account or use it for grad school," Abrahams said.

Some parents halted their college savings contributions last fall because of the collapse of the stock market, said Roger Michaud, divisional sales manager for Franklin Templeton Investments of San Mateo, Calif., which runs the NJBEST 529 College Savings Plan.

However, that trend is reversing. The number of new accounts opened in the New Jersey savings plan increased 6.5 percent in the first quarter, compared with the final three months of last year, he said. The fund had 51,000 accounts at the end of last year.

"Most folks who were sitting on the sidelines have come back," Michaud said.

Because conservative investors are worried about the stock market, Franklin Templeton is considering offering a life cycle fund -- timed to a student's age -- that would be mostly in stable investments, such as bonds and cash, he said.

About 52 percent of investors who were surveyed are saving the same amount for college as they have in the past, despite the recession, according to a first-time study by Sallie Mae, the nation's leading provider of student loans. There is no comparable data for previous years.

Most of the people who were surveyed said they expect their children to attend college, and 48 percent plan to pay for most or all of the cost.

Tuition and room-and-board for an in-state, public college costs more than $57,332 for four years, and more than $136,000 for a private college, according to Sallie Mae.

Only one-third of the respondents saving for college are using a 529 plan, which offers a variety of tax benefits, according to the survey.

"More people seem to be saving using bank accounts and CDs," said Patricia Nash Christel, a spokeswoman for Sallie Mae.

Parents can check salliemae.com/invest to find out if they are on track with their savings.